For wealthy Americans, a big win by Hillary Clinton on Nov. 8 could get pretty expensive.
Clinton is proposing higher taxes on Americans who make more than $250,000, including a 4 percent “fair share surcharge” on incomes over $5 million a year. She’s also trying to limit the ability of the rich to lower their tax bills through clever planning.
This has made the election a hot topic at accounting and advisory firms that cater to the wealthy. The election “dominates the conversations we have with clients today,” said Brian Andrew, chief investment officer at Johnson Financial Group.
Changing tax laws is easier said than done. Even if the Democratic presidential candidate defeats Donald Trump, she’ll probably be negotiating any tax bills with a House of Representatives still controlled by Republicans. Democrats would get free rein to set tax policy only if a big Clinton win helps them gain control of both the Senate, which is teetering, and the House. The likeliest scenario is divided government, in which the House will thwart any substantial tax increase, said Joe Heider, founder of Cirrus Wealth Management in Cleveland.
Still, “there’s a growing concern [among Republicans] that this could become a wave election,” Heider said.
Clinton proposes raising revenue by $1.4 trillion over the next decade. Almost all of that burden falls on the top 1 percent of taxpayers, according to the Tax Policy Center. The top 1 percent's after-tax income would fall by an average of 7 percent. Trump, by contrast, would cut taxes by $6.2 trillion over the next 10 years, with the top 1 percent getting almost half that benefit and a 13.5 percent boost to their after-tax income.
Advisers to the wealthy are ready to take evasive action if Democrats make big gains.
“We have to be quick enough to pull the trigger after Nov. 8,” said Alan Kufeld, a CPA and tax partner at PKF O’Connor Davies LLP, who says most of his clients have a net worth of $25 million to $1 billion. “You have to have a plan that is very fluid.”
The rich tend to have more financial flexibility than other taxpayers. If taxes look like they’re going up, they have a few cards they can play. One common tactic is being smart about when to receive income and when to recognize losses and take deductions. To cut the taxes you owe next April 15, for example, you can try delaying income to future years while taking as many deductions and losses as you can this year.
“If you’re going to sell something, sell it next year so you have an extra year to pay the tax,” said Richard Rampell, a CPA and principal at MBAF in Palm Beach, Florida.